Was The Smart Money Right About PepsiCo, Inc. (PEP)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PepsiCo, Inc. (NASDAQ:PEP).

Is PepsiCo, Inc. (NASDAQ:PEP) a healthy stock for your portfolio? Hedge funds were in a bullish mood. The number of long hedge fund positions increased by 4 in recent months. PepsiCo, Inc. (NASDAQ:PEP) was in 56 hedge funds’ portfolios at the end of December. The all time high for this statistic is 65. Our calculations also showed that PEP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 52 hedge funds in our database with PEP positions at the end of the third quarter.

In the financial world there are dozens of methods market participants employ to grade their stock investments. Two of the most underrated methods are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the best investment managers can trounce the broader indices by a significant amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a gander at the new hedge fund action regarding PepsiCo, Inc. (NASDAQ:PEP).

Do Hedge Funds Think PEP Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PEP over the last 22 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Fundsmith LLP held the most valuable stake in PepsiCo, Inc. (NASDAQ:PEP), which was worth $1430.9 million at the end of the fourth quarter. On the second spot was Yacktman Asset Management which amassed $481.2 million worth of shares. Diamond Hill Capital, AQR Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to PepsiCo, Inc. (NASDAQ:PEP), around 5.95% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, setting aside 5.66 percent of its 13F equity portfolio to PEP.

As industrywide interest jumped, specific money managers were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, assembled the biggest position in PepsiCo, Inc. (NASDAQ:PEP). Scopus Asset Management had $27.8 million invested in the company at the end of the quarter. Mark R. Freeman’s Socorro Asset Management also made a $8.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Nicholas Bagnall’s Te Ahumairangi Investment Management, Parvinder Thiara’s Athanor Capital, and Valerie Malter’s Matarin Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PepsiCo, Inc. (NASDAQ:PEP) but similarly valued. These stocks are AT&T Inc. (NYSE:T), Pfizer Inc. (NYSE:PFE), salesforce.com, inc. (NYSE:CRM), Intel Corporation (NASDAQ:INTC), Abbott Laboratories (NYSE:ABT), Oracle Corporation (NYSE:ORCL), and AbbVie Inc (NYSE:ABBV). All of these stocks’ market caps match PEP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
T 58 1045081 7
PFE 63 1848417 -3
CRM 97 10576035 -9
INTC 72 5578824 6
ABT 64 4303482 2
ORCL 52 2450210 -4
ABBV 83 6965013 1
Average 69.9 4681009 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 69.9 hedge funds with bullish positions and the average amount invested in these stocks was $4681 million. That figure was $4288 million in PEP’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Oracle Corporation (NYSE:ORCL) is the least popular one with only 52 bullish hedge fund positions. PepsiCo, Inc. (NASDAQ:PEP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PEP is 39.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and surpassed the market again by 1.6 percentage points. Unfortunately PEP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PEP investors were disappointed as the stock returned -2% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.